The changing rental landscape

As the market loses some of its sizzle, South Florida landlords are offering more deals

May 14, 2007|By Paul Owers Staff Writer

When Denise McGill moved to Palm Beach County from rural North Carolina two years ago, she was stunned at the high cost of housing. So she found a roommate and resigned herself to renting.

"In retrospect, I definitely did the right thing," said McGill, 38, an assistant photojournalism professor at Palm Beach Atlantic University in West Palm Beach. "I'm so glad I didn't buy because I would have bought at the peak of the market."

South Florida's rental market became one of the hottest in the nation in recent years, thanks to skyrocketing housing costs and a surge of condominium conversions that shrank the inventory of apartments. With home prices declining, many renters are staying put, hoping prices fall even further and waiting to see what Florida legislators do to address soaring property taxes.

But the rental sector will lose some of its sizzle in 2007, analysts say. Short-term investors who can't sell homes and condos bought during the housing boom will try to rent them, helping create more vacancies and less rent growth across the region.

"This is something we have to watch over the next couple of quarters because the market is adjusting," said Sam Chandan, chief economist for New York-based research firm Reis Inc.

During the past few years, competition for a dwindling supply of apartments pushed down vacancies in Palm Beach and Broward counties. Landlords responded by raising rents, which climbed to almost $1,050 last year from about $900 in 2003, according to Reis.

Even during the first quarter of 2007, it was difficult finding an apartment in Broward, which had the nation's 12th lowest vacancy rate, 3.8 percent, according to the National Association of Realtors. Things weren't as tight in Palm Beach County, where the January-to-March vacancy rate of 5.1 percent ranked 32nd.

But condo conversions have tailed off after peaking two years ago. Tepid sales have thousands of units back on the market as rentals.

Changes at the Spring Harbor apartment complex in Delray Beach are typical of those across the region. It briefly converted to condos, only to revert back to rentals when sales didn't meet expectations.

Meanwhile, developers are building more apartments. Palm Beach County, for example, will have more than 2,000 new apartments by the end of 2007, up almost 18 percent over last year, the National Association of Realtors said.

The batch of new units and a rising inventory of investor-owned rentals are providing more of a selection and easing rent increases that were so common in the past four years.

Landlords recognize the changing landscape and are starting to offer deals, such as a month's free rent and discounted fees, said Susan Harding, publisher of the Boca Raton-based Southeast Florida Apartment Guide.

"Vacancy is lost money," Harding said. "So we're seeing a lot more concessions out there designed to get people moved in."

All things being equal, consumers prefer to buy homes rather than rent. But the median price of an existing home has shot up by more than 165 percent in Broward and Palm Beach counties since January 2000.

Palm Beach County's median price for March was $375,100, while Broward's median was $372,400, according to the Florida Association of Realtors. The Orlando-based trade group releases April figures later this month.

It isn't just the basic price of homes that made consumers cringe. They also complained about massive increases in property taxes and insurance premiums, which pushed monthly mortgage payments out of reach.

Renting quickly became the only way for many people to afford living in South Florida from 2000 to 2005.

Monica Williams wanted to buy her first house two years ago. But she settled into a two-bedroom apartment in Plantation, paying $1,167 a month in rent.

"I didn't know if I'd ever be able to buy," the 36-year-old flight attendant said. "I was afraid I'd have to move out of South Florida altogether."

Williams saved money and paid off debts to get in position to own. She recently bought a townhouse in Plantation.

But many people won't be buying. Lenders are tightening credit standards, keeping potential homeowners in the rental pool.

Others realize home prices won't increase as fast as they have in recent years, Reis' Chandan said.

"That pressure to buy isn't there," he said. "I think that may tip things in favor of renting."

Ron Witten, owner of a Dallas-based apartment advisory firm, agrees.

"There remains a degree of uncertainty about housing prices," he said. "And if [price] is important to you as a buyer, then waiting's the safe way to go."